The essential middle class

July 9, 2014 —

Among the lessons that political science students once learned in Poli-Sci 101 was that a broad middle class underpins both the success and the strength of a democracy and helps support a vibrant economy. With its extensive, wide-ranging middle class, the United States was held up as the perfect model for peace and prosperity. Other nations that lacked this solid middle class—those that had a cluster of wealthy, ruling elites at the top and legions of the poor at the bottom—were cited as countries that invited social and civil unrest; often they were ruled by authoritarian governments that imposed stability through whatever means deemed necessary.

Today, it’s not much of a secret that America’s middle class is shrinking, and citizens with middle-class hopes and dreams are feeling the pressure. Fully 42% of all middle-class adults say they are financially worse off than they were before ravages of the Great Recession. Today, the share of Americans who identify themselves as middle class has never been lower, down from 53% in 2008 to just 44% in 2013.

In truth, the erosion of middle class incomes began long before the recession. In 1971, according to the Pew Research Center, 61% of all adults lived in middle-income households. By 2011, this share had fallen to 51%, while the lower- and upper-income sectors grew. During this period, middle-income households saw their share of total U.S household income fall 17%, while income rose 17% for upper income households. The median household worth, which was $73,000 in 1983, was just $57,000 last year.

How did we get here?

Lack of middle income jobs & stagnant wages

Economists point to the effects of globalization and free-trade agreements for lack of middle-income jobs, which have increasingly been automated (thanks to computers), or have been outsourced (even professional jobs like programming, engineering and other high-skilled jobs have been shipped overseas).

Meantime, the growth of low-skill jobs dominates, with job creation heavily concentrated at bottom wages. Even last week’s encouraging jobs report is good news only if one looks at employment numbers and ignores the low earning power of those jobs.